The Cost of Disengagement

A video version of this post is available on YouTube and at Compensation Cafe.

By now it's well accepted that companies with engaged employees outperform companies with disengaged employees. That means they earn more profit, which is what most companies are trying to do.

Here's a formula that expresses the relationship between engagement and profit:

If engaged employees = higher performance and higher performance =  more profit, then engaged employees = more profit. 

I call this the transitive property of engagement.

What we talk about less frequently is workforce disengagement, which is arguably the more important topic because it helps underline why companies have a vested interest in treating people well. 

Clearly, not every organization will have highly engaged employees but many will somehow carry on regardless.  But every company should take steps to avoid active disengagement because disengagement’s really expensive.

How expensive?  Well, there are the obvious costs such as lower productivity and absenteeism, which can be calculated.  For example, Recent Gallup research found that only 13% of Germany’s employees are engaged in their jobs.

“Gallup estimates that actively disengaged employees cost the German economy between 121.8 billion and 133.6 billion euros per year in lost productivity. Absenteeism is also pretty expensive, considering that each day an employee is away from work in Germany costs companies an average of € 247.20 per worker."

These are the obvious costs but there are also less obvious costs, such as the negative impact on company morale and customer care.  The risk isn’t that disengaged people leave, it’s that they stay.  They may even show up and do their work adequately but behind the scenes, subtly bad things are happening.  For example:

• Fear – Employees withhold important information, such as customer issues or problems with your products or services.
• Passive resistance - We've all encountered someone who, while being perfectly pleasant, is also completely obstructive.
• Information hoarding - People don't share information and may even actively withhold it.
• Lack of initiative- Beyond doing what it takes to stay employed, no one cares enough to go the extra mile for a customer.
• Suppression of creativity - Creativity obviously doesn't flourish in this environment.
• Unhappiness - The negative atmosphere is palpable to employees and customers alike.

All of this is very bad for the business and it has a cost.

So firing people with a termination notice on their windshield, making people work extra hours with no extra pay or cheating people out of their expected compensation aren’t just inhumane practices, they're also bad for business.

Even the more common and less extreme example such as micromanaging, hiring externals for more money into the best leadership roles, failing to develop internal talent and generally treating people like replaceable cogs are also bad for business.

What’s good for business are the things that give people a personal stake in your company's success.  Developing people.  Showing people you value them.  Letting them grow and make decisions. In other words, good management is good for business.

I’ve come up with a formula that expresses the relationship between good managers and good business:

If developing people is good for the business and good managers develop people, then good managers are good for the business.

I call this the transitive property of good management.

That means that you need good managers if you want to avoid disengaged employees. And you may want to think about compensating your managers for developing people, because that’s probably not what they’re compensated for today.

Bottom line: Not every company may aspire to workforce engagement but every company has a vested interest in treating people well.